We just published some new research that looks at buy side use of single-dealer platforms and multi-dealer platforms in the FX market. Our historical usage data shows MDPs overtaking SDPs slow but surely – but new regulations (most notably footnote 88) are temporarily reversing that trend. Particular interesting (to me at least) in this report is our platform usage statistics, both for MDPs and SDPs, based on over 1000 buy side interviews. Usage is also broken down by firm type (Asset Managers, Hedge Funds, Corporates, etc.). The report is available to Greenwich Associates market structure research customers. Feedback as always is welcome.

November 12, 2013 Stamford, CT USA — In a new report released today, U.S. Regulations May Slow Shift to FX Multi-Dealer Platforms, Greenwich Associates concludes new derivatives rules could push more FX trading volumes back to single-dealer trading systems and may eventually trigger consolidation among multi-dealer platforms.

Global trading volume on multi-dealer platforms climbed to 44% last year up from 38% in 2007 as single-dealer volume dropped to 42% from 49% during the same period. Currently, the biggest beneficiaries of this shift among institutional and corporate FX market participants are FXall with 29% market penetration, 360T with 18% and Bloomberg with 17%.

New Rules Give Temporary Boost to Single Dealer Platforms

Regulations requiring multi-dealer platforms to register as SEFs may drive more trading volume to single-dealer platforms in the near term as clients look to minimize the impact of new regulations on their trading process.

Greenwich Associates projects FX trading on single-dealer platforms to remain steady or grow slightly in the next 6–12 months, especially among financials, who are already the heaviest users of these systems. “The good news for multi-dealer platforms is that we see this shift as a transitory phenomenon,” says Greenwich Associates Head of Market Structure and Technology Advisory Service Kevin McPartland. “In the long term, the move to multi-dealer platforms will resume.”

Consolidation Ahead?

The resurgence of multi-dealer platform volume may be spread over fewer players and Greenwich Associates believes the regulatory burdens and other demands of operating a SEF will trigger the consolidation of multi-dealer platforms, especially those operated by a single parent company.